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I just recently upgraded my macbook to 160 Gigs. The whole process took me less than 10 minutes to swap out the old one and put the new one in.
Yes, you do have to use a serial ATA 2.5" USB Enclosure. I put my 80 Gig Hard Drive into one and it's great. Depending on where you live, you can get one at any major electronic computer store. Eg. Best Buy.

Hi there,
Yes I did use a disk image to back up my start up disk. I did a lot of research in regards to backup software and alot of magazines eg. macworld and websites suggested using a program called Super Duper.

It's a free program to back it up, however there is more features enabled once you purchase the software. Eg. Smart back up , instead of copying your whole start up drive again.

Note: if you plan to make a disk image of your start up drive there is 2 options:
1) You can back up your start up drive disk image on your start up drive itself. If this is the case, make sure you have enough room on the existing hard drive.
2) you can back up your start up drive disk image on an external hard drive.

Since I didn't have an external hard drive the first time around, I just backed up everything on DVD's. (not really necessary if you plan to use the old macbook as an external hard drive). But it's always better to be prepared, so I went ahead and backed up music/docs/pictures on DVD anyways.

1) Replaced the macbook with the new hard drive
2) Re-installed the Mac OS , applications, loaded up music and documents
3) Placed my old macbook hard drive in a USB 2.0 enclosure. (i can transfer the music, pics and docs) unto the new hard drive.
4) I used the macbook disk utility and partioned the USB 2.0 enclosed hard drive to wipe it all clean.
5) loaded up Super Duper and copied the macbook start up disk to the external hard drive.

Now if i ever need to, i have the USB 2.0 enclosed hard drive as a bootable drive if the hard drive in the macbook fails.

Also, I was wondering if boot camp could boot Vista from an external hard drive, in lieu of partitioning the macbook's internal HDD. Would the speeds of Firewire 400 or USB 2.0 make it unusable even if it is technically possible?